I won’t point fingers, but a Google or Twitter search will show how many authors seem to think Amazon is bad, the agency model is good, and the poor Big 6 are getting the shaft.

Uh, no. That’s just plain wrong.

I’m going to explain why the agency model in this particular case is indeed bad for authors. But first go read April L. Hamilton’s terrific breakdown of arguments and statements erroneously defending the Big 6.

Before I begin, let’s make sure we’re all on the same page about what the agency model is. Here’s a detailed explanation, but in a nutshell it is this: in a wholesale model, the one supplying the goods sells to a retailer at a predetermined price, then the retailer sells to consumers at whatever price they see fit.

In the agency model, the one supplying the goods gets to set the price for consumers, and then gives the retailer a set percentage (in this case 30%.)

It should be obvious that the one who sets the price has a great deal of power over the market.

The agency model by itself is not illegal. Retailers can choose to adopt any pricing structure with their suppliers as they see fit. And as I said before, I care less about the legality of this particular business relationship, and more about if it was good for authors.

Under the prior model, Amazon bought ebooks at a percentage of the recommended retail price. Then they priced them how they saw fit.

The recommended retail price for ebooks was often about half of the hardcover price. So a $25 recommended retail price meant Amazon paid $12.50 for the ebook.

According to most contracts, the author made 25% of the net price the publisher received. So at the above numbers, an author would make $3.12 NO MATTER WHAT PRICE AMAZON SOLD THE EBOOK FOR.

In other words, if Amazon wanted to sell the ebook for $9.99, the author still makes $3.12.

Sell it for $5.99? Author makes $3.12.

Sell it for 99 cents? Author makes $3.12.

So what happens when the agency model comes into play?

First of all, Amazon no longer controls the price. We all know that this is BAD, because Amazon became the giant billion dollar company it is today by ruthlessly gouging customers, forcing them to pay high mark-ups at unreasonable prices.

Oh, wait a sec… Amazon doesn’t do that. In fact, Amazon works its butt off trying to keep prices low. That’s why so many people shop there.

Comments:

Word.
I think the big six weren’t just worried about control and keeping the paper book industry afloat, they were concerned about Amazon’s predatory pricing driving out competition and leaving them with no bargaining power at all. Next thing you know, Amazon will be telling them they’ll accept $7 for each book sold instead of $12.50, and if they don’t like it they can see how many books JoeSchmoe’s on-line warehouse sells for them.

Doesn’t mean the agency model isn’t poop, just that there is another issue looming on the horizon.

I have to say that the author is taking a decidedly short term perspective on the issue. Yes, the agency model might mean less money in the Author’s hands now, but are we sure Amazon is going to keep giving fairly generous terms to indie authors and pay publishers list price if they manage to drive B&N, Kobo and Apple out of the book business?